The man who came close to becoming Federal Reserve chairman raises some doubts about the central bank's tactics when he told a group of economists meeting in Washington that the economy is not as strong as hoped all these years after the financial crisis.
Former Treasury Secretary Larry Summers says there are questions about the effectiveness of monetary policy, with the short-term interest rates set by the Fed as low as they can go. He says the expansion of the Fed's balance sheet, through asset purchases, raises questions about financial stability and about possible bubbles.
Better than nothing
At the same time, he says the Fed's actions have been better than doing nothing, which he says has been the practice of U.S. "fiscal authorities" in recent years. In so many words, Summers was pointing to inaction by Congress to spur the economy.
In addition, he says, "The record of growth for the past five years is disturbing." Among particular areas of concern, he pointed to falling rates of employment for men in the U.S. between the ages of 24 and 54. While the jobless rate has continued to decline, some economists note that employment rates have failed to improve substantially.
What he would do
As for what should be done, he suggests actions to spur private investment, such as tax reform and measures to spur exports and public investment. Summers says a program of fiscal stimulus, or government spending, can have the impact of lowering long-term debt. But he says any kind of austerity -- such as budget cuts -- would be counter-productive.
Summers, president emeritus of Harvard University, says of the recovery after the Great Recession: "The economy is now 10 percent below what in 2007 we thought it would be in 2014." He spoke at a conference of the National Association for Business Economics.
Last summer, reports circulated that the Obama administration was floating Summers' name to succeed Ben Bernanke as Fed chairman. In the end, backers of Janet Yellen prevailed in pushing her to the front of the nomination line, and she would go on to clinch the job. During his appearance, Summers made no reference to the change at the top of the nation's central bank.
What do you think? Does Summers raise good points? Or is it just sour grapes?
Follow me on Twitter: @Hamrickisms.